Strains on NGL pipeline capacities and processing plants may create issues for gas producers for years

Paul WisemanMidland Reporter-Telegram

Published 7:00 am, Wednesday, April 13, 2011

For about 30 years there was little concern on the part of most natural gas producers about pipeline capacity, especially concerning natural gas liquids, or NGL pipelines.

Then hydraulic fracturing techniques began to spread across the landscape, revitalizing fields that had been produced for decades. Plus, hydraulic fracing opened new fields across the nation, glutting pipelines with product and stretching processing facilities to their limits. At the Natural Gas Producers Society of the Permian Basin meeting Tuesday, Dan Lippe of Houston-based Petral Worldwide, an industry consulting firm, discussed midstream companies' race to keep up with this overwhelming growth in production.

Lippe painted a scenario in which NGL pipeline and plant capacities likely will leapfrog each other over the next 5-10 years, in what he called a "decade of infrastructure expansion.

"One day we all woke up after 30 or 40 years and there wasn't enough pipeline capacity or fractionation capacity or enough capacity of anything anywhere," he continued. "Three or four years ago we were all fairly comfortable, we didn't have any problems. All we had to do was punch our holes in the ground, bring the gas out or bring the crude out and sell it."

Now there are infrastructure restraints everywhere, he stated, particularly in NGLs. These restraints are in spite of the recent construction of many new pipelines and additions to fractionation plant capacities.

The two main plants treating gas from the Permian Basin are the Williams Partners, L. P. plant near Conway, Kansas, and the Enterprise Products Partners, L.P. plant near Mont Belvieu on the upper Texas coast. "The important thing for you to remember," said Lippe, "is everything that happens anywhere is going to have an impact on Mt. Belvieu, which means it is going to be important to you."

While the natural gas in homes is almost pure methane, the gas that comes from the ground contains many other substances, often including NGLs, which must be separated out at preliminary plants at a gathering point in or near the field. The gas is sent on through one pipeline while the removed substances, including propane, butane, ethane and other substances goes into the NGL pipeline to Mont Belvieu, Conway or elsewhere. These plants then separate the NGLs into their component parts for individual sale. Some of the components, such as ethane, may actually sell for more than the natural gas itself.

With new gas production in Wyoming and elsewhere in the Rockies, and with new pipelines rushing those NGLs to the Conway plant, the infrastructure became overloaded to the point that prices at Conway became deflated, averaging 10-12 cent less per gallon than at the Mont Belvieu plant, Lippe stated. "If you're in West Texas or in eastern New Mexico, you do not want your stuff going to Conway."

The huge Overland Pass pipeline completed in the last two years, said Lippe, shifted a large amount of NGLs to Conway that should have gone to Mont Belvieu, the latter plant being "the center of the universe," he joked.

Now the problem is that the Conway does not have the capacity to process what the Overland Pass pipeline brings it, so someone must put up "a billion dollars" to send its oversupply to Mont Belvieu.

Adding up the production from all gas plants in New Mexico and in Texas's inland region, Lippe put the total at 900,000 barrels per day. Comparing that to state pipeline capacity of 800,000 barrels per day of raw mix (unrefined NGLs) serving West Texas and New Mexico, he said, "We probably have a raw mix pipeline capacity constraint." This is in spite of the fact that pipeline capacity was increased by 90,000 barrels per day during the last years of the previous decade.

Those expansions filled quickly because there had been field based plants that were not fully recovering their liquids before putting the gas into the gas-only pipelines due to previous pipeline restraints. As soon as the capacity expanded, those plants began fully recovering NGLs and sending them to the NGL pipelines, filling them up once again.

Plus, with the Overland Pass pipeline flooding the Conway plant with feedstock, NGLs that once were sent to Conway now had to shift back to Mont Belvieu, Lippe said. And with horizontal drilling and hydraulic fracing increasing, the production of NGLs is only expected to increase further, creating even greater strains on the pipelines.

Lippe reported hearing that one, possibly two new pipelines may be built from West Texas to the Gulf Coast in the near future. This would bring extra capacity, but he estimated that it would be the end of 2013 at best before any new pipeline would be ready to take liquids.

Some producers have tried to work around this by shipping propane plus-not ethane-by rail to Mont Belvieu. Unfortunately, the plant is primarily set up to receive raw mix by pipeline, not by rail, so that system is likely to back up quickly as well, according to Lippe.

Two to three years ago, said Lippe, the problem was a lack of extra capacity in fractionation plants. Plant additions that came online in November of last year and that are slated to go live later this year and again in 2012 have alleviated that constraint, only to now face a shortage of pipeline capacity needed to fill those plant additions.

Then, when the new pipeline from West Texas comes online and any new pipelines from the Eagle Ford formation in South Texas get going, the bottleneck will shift back to fractionation. Eagle Ford consists of three zones, only one of which is primarily dry gas. The other two promise to create huge supplies of NGLs as that formation is developed. Only one pipeline, with a 50,000 barrel per day capacity, serves that area now.

Other alternatives are on the way, some from foreign investors. Energy Transfer Partners is building a pipeline to Point Comfort on Matagorda Bay to a Taiwanese-owned ethylene plant built about 10 years ago, said Lippe.

Wherever the constraints are at a given time, they create challenges for producers. Either the producer must leave some of the very valuable liquids in the gas pipeline instead of the NGL pipeline-to whatever capacity the gas pipeline operators allow-or they must ship by rail car, which itself has limited capacity.

Producers can no longer, as Lippe said, simply punch holes in the ground and assume product will get to market. Strictures in transportation and processing may even affect drilling projects at some point if capacity cannot grow fast enough.